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June 17, 2013

Best Firms for Self-Directed Investors: J.D. Power—2013

The survey finds that, with some exceptions, investment firms are not communicating well when it comes to fees, online tools and products

J.D. Power & Associates finds that self-directed investors are feeling less satisfied than last year when it comes to the investment firms that they work with for their online trades and related activities: From a possible score of 1,000, the industry average declined by 16 points to 752.

The 2013 U.S. Self-Directed Investor Satisfaction Study, released Monday, includes the views of 3,619 investors who make investment decisions without the counsel of investment advisors. They were interviewed in January and February about the specific firms that custody their accounts.

Communications seems to be a key area where improvement is needed.

“Investment firms miss an important opportunity to keep self-directed investors informed about fees, investor tools and other product offerings by not communicating in the manner and frequency that investors prefer,” said Craig Martin, director of the wealth management practice at J.D. Power, in a press release.

“Firms need to know how their investors would like to be notified—whether it occurs via email, phone or other means. It’s important to contact investors proactively and at the appropriate frequency based on investor preference.”

Of the 10 firms ranked by investors, most in the top five spots saw their scores drop from 2012. One exception was the 2013 best performer, which saw its score rise by 12 points from a year ago.

J.D. Power’s study of self-directed investors is now in its 12th year. The research tracks self-directed investors’ satisfaction based on these factors (in order of importance): interaction, account information, trading charges and fees, account offerings, information resources and problem resolution.

Investment firms like Charles Schwab (SCHW) and Vanguard are offering more online tools and information for self-directed investors than ever, the research firm says, but the additional content and capabilities “may actually make it more difficult to access the functions investors are seeking if a website is not easy to navigate and communication is not clear.”

For example, J.D. Power states: “Overall satisfaction declines by 72 points when website functions are difficult to locate. When investment firms do not communicate frequently enough and do not communicate via investors’ preferred methods, satisfaction declines by 62 points.”

Other areas where investment firms showed a decline in their results over the past year were as follows:

The percent of investors who say they “completely” understand their fee structure dropped to 35% from 39%.

The proportion of investment firms that contact investors two or more times in the past 12 months—the minimum standard—regarding products, services or educational seminars fell to 34% from 39%.

The incidence of investor awareness/use of at least one financia planning tool decreased to 28% from 31%.

The research also found that although 55% of investors say their firm offers educational seminars, only 7% have attended one of these seminars.

“While, in theory, offering more tools and services may seem to be better, those offerings will have limited value if the features and benefits aren’t applicable to the majority of investors,” noted Martin. “Investment firms need to understand the trading behaviors of their investors and provide them with information, tools and other capabilities that will address their highest priority needs. Taking a one-size-fits-all approach is likely to result in fewer investors being satisfied.”

Keep reading for self-directed investors' ranking of investment firms, along with last year's chart for comparison: